(NASDAQ: KTOS) OCTOBER 2008 Imperial Capitalfiles.shareholder.com/...4483...FINAL_102208.ppt.pdf · (NASDAQ: KTOS) OCTOBER 2008 Imperial Capital ... Management Agency (DCMA),

INVESTOR PRESENTATIONKratos Defense & Security Solutions, Inc. (NASDAQ: KTOS)

OCTOBER 2008

Imperial CapitalHomeland Security Investor Conference

NASDAQ: KTOS Page 2

NOTICE REGARDING FORWARD LOOKING STATEMENTS

This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include those risk factors discussed in the Company’s reports on form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission.

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Who We Are:

KRATOS AT A GLANCE

Kratos Defense & Security Solutions (NASDAQ: KTOS) is:

� A quickly-growing, mid-sized prime contractor focus ed on the growing defense, intelligence and homeland security markets

� We primarily provide mission critical engineering, information technology and systems integration services

� Our largest customers include the federal governmen t, primarily the Department of Defense, and other state and local ag encies

� Headquartered in San Diego, CA

� Diverse, skilled workforce of ~2,000

� 70% hold active security clearance

� Large and growing national footprint

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Who We Are:

COMPETITIVE STRENGTHS OF BUSINESS MODEL

Differentiated Expertise

� Kratos has accumulated highly-differentiated expertise primarily in the areas of Weapon Systems Sustainment, C5ISR, Military Range Operations & Technical Services, Missile, Rocket and Weapon Systems Test & Evaluation

� Significant experience with public safety, security and surveillance

� Business is comprised of two segments focused on federal government and homeland security/public safety

Significant Customer Relationships

� Navy, Army, Air Force, Foreign Military Sales, Defense Logistics Agency (DLA), Defense Contract Management Agency (DCMA), State of Indiana, White Sands Missile Range (WSMR), Dept. of Labor (DOL)

� We also maintain significant commercial customers and Kratos is a Cisco-approved Premier Partner

Experienced Management Team

� 200+ collective years of federal government experience with significant M&A and integration experience

� Kratos Executive Team, including CEO, CFO, and others, played a primary role in building the Titan Corporation (NYSE: TTN) from $100 Million to ~$2 Billion, ultimately sold to L-3 Communications

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Key BRAC Recipient Locations

Who We Are:

COMPETITIVE STRENGTHS OF BUSINESS MODEL

We are building a business concentrated at Key BRAC Recipient Locations

� San Diego, Oxnard, Keyport, Wright-Patterson, White Sands, Key West, Huntsville, Hawaiian Islands, Washington DC/beltway

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Who We Are:

PORTFOLIO OF PRODUCTS & SOLUTIONS

Kratos has developed highly-specialized expertise i n product and solutions directly tied to the priorities of the Department o f Defense and Department of Homeland Security:

� Public Safety & Security Integration and Product Solutions

� Critical Infrastructure Design

� Information Technology and Network Products and Solutions

� Weapon Systems Life Cycle Support & Extension

� C5ISR – Command, Control, Communications, Computing, Combat Systems, Intelligence, Surveillance, and Reconnaissance

� Military Range Operations & Technical Services

� Missile, Rocket and Weapon Systems Test & Evaluation

� Mission Launch Services

� Advanced Network Engineering

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Where Kratos is Primarily Focused:

INDUSTRY GROWTH DRIVERS

Increased spending on national defense and intellig ence: FY2008 DoD Budget is $481 Billion, an increase of 62% since FY2001; FY2009 Bu dget request is $515 Billion

Department of Homeland Security Budget has grown to $38B for 2008

U.S. Arms exports are driving rapid increases in Fo reign Military Sales (FMS)

Federal information technology services market is g rowing from $80B to $102B by 2012

Continued Outlook:

� We believe the demand for our services to the U.S. Department of Defense will increase, not decline, as Operation Iraqi Freedom subsides. We also believe the federal IT market will continue to expand due to the aging government workforce and federal government outsourcing trends continue at the current rate. Due to heightened security concerns, we believe the demand for public safety and security services will also continue to rise.

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BROAD CONTRACT & CUSTOMER BASE

The diversified composition of the portfolio provid es for a stable business model

� Federal government contract vehicles are typically 5 years in length and backlog is typically multi-quarter/year in nature

� Federal government contract procurement is approximately 2 years in length and re-competitions are typically 95%+ win rate by incumbent, industry norm

Fixed Price 53%Cost Plus 22%

Time & Materials 25% Army 19%

Air Force 5%

Navy 32%Other Federal &

Homeland Security14%

FMS 5%

State & Local10%

Majority Are ‘Full and Open Competition’Prime Contracts

Other 15%

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Macro-level Defense Against Incoming Threats:

AEGIS MISSILE DEFENSE

Comprehensive missile defense strategy includes…

IdentifyingIntercepting

&Defeating

…all incoming ballistic missile threats to the Unite d States HOMELAND.

The Aegis Ballistic Missile Defense System is a Uni ted States Department of Defense Missile Defense Agency program developed to p rovide a last line of defense against ballistic missiles.

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BALLISTIC MISSILE DEFENSE“Bleeding-edge technology and scientific research is required for this system.”


AEGIS PARTNERS“International cooperation is critical to the overall interests of the Aegis System.”

� Japan

� Australia

� Israel

� Germany

� Italy

� United Kingdom

� The Netherlands

� Spain

� Denmark


KRATOS ORIOLE ROCKET SYSTEM

Oriole Rocket System

� First newly developed sounding rocket in over 30 years

� Kratos solely owns designs & produces ancillary rocket system hardware

� Kratos has exclusive rights to market Oriole rocket motor for three applications

� Target rockets

� Sounding rockets

� Suborbital research (Hypersonics)

� Kratos & ATK jointly own design & ATK manufactures Oriole rocket motor

This is a proprietary Kratos system

Ballistic Missile Defense Targets

� Kratos has developed & produces low cost Ballistic Missile Defense (BMD) targets

� Hi-Fidelity tracking targets

� Current designs address two defined threat classes, third pending

Mission Launch Services

� Mission Planning

� Mission Analyses

� Flight Systems Analyses

� Launch Operations

� Wind Weighting

� Flight Safety Analyses


SATELLITE SUCCESSFULLY SHOT DOWN“Hitting a Bullet with a Bullet”

“We have a high degree of confidence we got the tank.”- Marine Gen. James Cartwright

Ballistic missile being fired from USS Lake Erie

Image of missile impact


� North Korea

� Iran

� Russia

� “Barge Missiles”

These threats require coordination with and collabo ration of international allies.

INTERNATIONAL THREATS TO THE UNITED STATES HOMELAND

North Korea Test-Fires Several Missiles

Iran's Nuclear Threat

Russia Successfully Tests New ICBM


WEAPON SYSTEMS� Patriot

� Avenger

� HAWK

� Chaparral

� DMS

� SLAMRAAM

� NASAAMS

� Dragon

� Linebacker

� TOW

� Hellfire

� Hydra-70 (2.75)

� AMRAAM

� UAV & UGV

� Lasers

� Sentinel

Organic Growth Initiatives & Key Capabilities:

WEAPON SYSTEMS TEST & EVALUATION

SERVICES� Test Evaluation Master Plan

development for weapon systems

� Threat analysis

� Target analysis

� Lethality analysis

� Telemetry (PCM & PAM)

� Test equipment & instrumentation design

� Safety releases

� Range operations – Short Range Air Defense (SHORAD) Range, NM

� On-site operations for test integration and execution

� Range scheduling

� Test plan development

� Data collection & analysis

� Post-test data reduction & analysis

CUSTOMERS

� U.S. Army � Ft. Bliss Training Center� AMCOM � National Guard� National Training Center� Joint Range Training Center� WSMR� Army T&E Command

� U.S. Air Force� KirtlaåAFB (AFRL)� Eglin AFB

� Joint Exercises (Roving Sands)

� Egypt

� Norway

� Boeing FCS LSI

� Raytheon

� Lockheed Martin

� U.S. Navy� NAWC, Pt. Mugu� PMRF, Kauai, Hawaii� NAVSEA� So. Cal Ranges� NUWC Keyport


Organic Growth Initiatives and Key Capabilities:

ADDITIONAL FOCUS AREAS

LEGACY SURFACE TO AIR MISSILE (SAM) SYSTEM ENGINEER ING SERVICES

� Chaparral and HAWK SAM Production, Operations and Maintenance

WEAPON SYSTEMS SUPPORT AND LOGISTICS

� U.S. Army Material Command (AMCOM) Integrated Material Management Center Short Range Missile Directorate

MISSILE, ROCKET AND MISSION LAUNCH SERVICES

� Oriole Rocket System & Ballistic Missile Defense Targets

MILITARY WEAPONS RANGE & TARGET OPERATIONS, ENGINEERING & TECHNICAL SERVICES

� Pt Mugu / White Sands

C5ISR ENGINEERING SERVICES

� SPAWAR / KEYPORT

IT / TELECOMMUNICATIONS NETWORKS

� DLA, DISAOriole Rocket System


DIVERSE LIST OF COMMERCIAL CUSTOMERS

Some of our Public Safety & Security customers incl ude:

� State of Indiana

� U.S. Dept. of Labor

� U.S. Dept. of Education

� White House Faith Based & Community Services

� Hartsfield-Jackson Atlanta Airport

� Theme parks

� AT&T/Lockheed

� City of Houston (METRO)

� Federal Reserve Bank

� Correctional facilities

� Hospitals

� Major sporting venues

� Atlanta Public Schools


INTEGRATED SECURITY & SURVEILLANCE

Design, Integration, Sustainment:

� Access Control and Identity Management

� Visitor Management

� Biometrics

� CCTV Surveillance

� Perimeter Protection

� Intelligent Security Guard

� Voice-Activated License Plate Capture – Hot Sheet

� Harbor Security Protection (Above water and underwater)

� Command, Control, and Monitor of fully integrated security program

� Information Assurance-Information Security Protection


Integrated Security & Surveillance – Examples:

MILITARY SECURITY / SURVEILLANCE SYSTEMS

EXAMPLE: Fort MacPherson, GA� Retrofit installation of a fire & life safety network in a large, top-secret

government communications building

� Key strategic BRAC location (FORSCOM) � Activities involve preparing buildings & surroundings

EXAMPLE: Fort Stewart, GA� Largest U.S. Army base east of the Mississippi River

� Customer: Directorate of Contracting, Fort Stewart

� Design, installation and three year service contract for a base-wide CCTV surveillance system covering building, training areas and ammunition bunkers, and access control

EXAMPLE: Fort Gordon, GA� Development and maintenance of ‘wireless battle lab’ testing facility

� Kratos engaged to manage the facility to test commercial and military hardware in preparation for wireless battlefield applications


Biometric recognition devicesBased on measurable physical characteristics:� Iris scan, hand and signature geometry, fingerprint,

voice/speech recognitionQuickly, securely associate and confirm an identity with a person

Protection of sensitive assets� Airports, subways, dams, hydro-electric plants, nuclear

power plants, shipping, banking, agriculture, highly-visible targets and national monuments, military resources

� Multiple layers of security and surveillance most effective� CCTV, access control, sensors, perimeter protection,

radar surveillance

EXAMPLE: Large, national data centers� Includes biometrics, access control, perimeter protection

Integrated Security & Surveillance – Examples:

DATA CENTERS & STRATEGIC AREAS / ASSETS


Strategic, Tactical Tools for Homeland Defense:

HOMELAND SECURITY THREATS – VIGILYS™

Need for live, collaborative, situational awareness

� Delivers the right information to First Responders

� Delivers the right information to the Operations Center

� Enables live geospatial collaboration between First Responders and all levels of Emergency Management

� Real-time Operation

DEPLOYMENT: DELAWARE COUNTY

� 3 Townships; 30+ First Responders

DEPLOYMENT: LIVERMORE-PLESANTON FIRE DISTRICT

� Two cities with integrated fire departments

Over $750 Million in initial Federal Grants earmark ed for Homeland Interoperability

Camera

Radar

Command, Control, & Communication

Wireless, Fiber, or Cable, Encrypted or Clear

Mobile Platform

Camera

Radar

Command, Control, & Communication

Wireless, Fiber, or Cable, Encrypted or Clear

Mobile Platform


HOMELAND SECURITY THREATS – VIGILYS™Turn this…


HOMELAND SECURITY THREATS – VIGILYS™Into this…


FIRST RESPONDERS CAN ACCESS…



LOCATION MAPS



LOCATION MAPS

SURVEILLANCE INFO



LOCATION MAPS

SURVEILLANCE INFO

GEO-SPATIALIMAGERY


Acquisition Growth Initiatives:

CONTINUED GROWTH THRU ACQUISITION

Acquisitions are a key component of Kratos’ strategy :

� Reach new customers, obtain additional contract vehicles and quickly follow changes in government funding and program priorities

� Positions Kratos for changes due to Base Realignment and Closure (BRAC) activities

� Broadens and improves services and solutions portfolio, key to Kratos’ strategic planning process

� Quickly obtain skill sets that are very marketable, high in demand, and very hard to find

� Better positions Kratos to achieve organic growth goals by expanding and enhancing employee base, contract portfolio, customer relationships, geographic presence and overall past performance qualifications, enabling Kratos to credibly bid on and win larger contracts in the prime contractor role

Primary acquisition currency to be cash/debt, utili zing free cash flow from operations to reduce debt levels and position Kratos for future t ransactions

� Not adverse to using Kratos stock in the correct circumstance

Integration after acquisition is always risky, thou gh somewhat mitigated by majority of employees being located at government and customer facilities—minimal operational/ execution integration

� Primarily integration areas are ‘back-office’ functions, such as accounting, treasury, cash management, disbursements, etc., as well as business development activities


Madison Research (Huntsville, AL)

� Weapons systems lifecycle support, integrated logistics, test and evaluation and software development for the Army, Air Force and NASA

� Longstanding customer relationships and high-value contract vehicles

Haverstick Consulting (Indianapolis, IN)

� Military ranges, weapon sustainment, targets, missiles and suborbital rockets, Rocket Support Services (RSS), Oriole rocket

� Air Force is largest opportunity area

� Significant past performance qualifications

SYS Technologies (San Diego, CA)

� Substantial capabilities in the areas of C5ISR, Net-centric/Information Technology, and Public Safety & Security

� Expands footprint with key DoD customers, including SPAWAR, NAVSEA, DISA, others

Acquisition Growth Initiatives:

RECENT ACQUISITIONS EXPAND PORTFOLIO

October, 2006

December, 2007

June, 2008


Company Growth:

SINCE 2003, KRATOS’ CAGR RATE IS ~45%

Kratos is arguably one of the fastest growing compa nies in our industry.

� Peer group EBITDA is 8-10%, which Kratos is targeti ng.


Company Growth:

FINANCIAL CHARACTERISTICS

Revenues & Growth

� 2007 revenues of $193.6 Million

� Year-over-year revenue growth of 26%

Capitalization Summary

� Total shares outstanding: ~105 million

� Public float: 70%

Stock Snapshot

� 52 week range: $1.33 - $3.00

� Institutional ownership: ~45%

� Insider holdings: ~30%

� Average volume: ~127,000 (3 month)

Outlook for 2008 and Beyond

� 2008 annualized revenue run-rate: $300+ million; 2009: $400+ million

� Balanced organic growth in select markets: 5%-10%

� Acquisition growth through highly-targeted, strategic acquisition: 10%-15%

� Combined annual revenue growth rate: 15%-25%


INVESTMENT SUMMARY

Highly-Experienced Management Team

� Proven track record of building, acquiring and creating valuable companies and generating growth

Growth Strategy

� Disciplined execution of growth strategy, including organic growth, while pursuing strategic acquisition targets aligned with DoD priorities

Broad Customer Base Provides Long-Term Stable Busin ess Model

� Long-term DoD customers and contract base

� Growing list of non-DoD agency customers

Attractive and Growing Markets

The government market is an attractive investment area because of its stability and steady cash flows

� Weapon Systems Life Cycle Support & Extension

� C5ISR

� Military Range Operations & Technical Services

� Missile, Rocket and Weapon Systems Test & Evaluation

� Mission Launch Services

� Public Safety & Security, Including Force Protection & Facility Protection

� Federal Government IT Services


Thank you.

Documents

(NASDAQ: KTOS) OCTOBER 2008 Imperial Capitalfiles.shareholder.com/...4483...FINAL_102208.ppt.pdf · (NASDAQ: KTOS) OCTOBER 2008 Imperial Capital ... Management Agency (DCMA),